Temp. Associates Performing Paralegal Work: SDNY Cuts Fees by $10 Million
Posted on October 31st, 2017 by Legal Fee Advisors
By Jillian Robbins.
An investor was successful in a securities fraud class action against a Defendant bank that made misleading statements regarding their vulnerability to mortgage-backed security repurchase claims, and sought over $51 million in attorney’s fees. While the Southern District of New York recognized the complexity of the class action, it reduced the fee award by $10 million, awarding just over $41 million. The Court reasoned that the Plaintiffs’ law firm’s time sheets did not accurately reflect the division of labor between partners and associates, and the firm billed its temporary associates at standard associate hourly rates, despite their contractual status. In the eyes of the Court, these temporary associates were nothing more than contract attorneys, and should have been billed on a pass-through basis, and not on a for-profit basis.
First, the Court noted that the Plaintiffs’ law firm’s eleven different partners billed 88% of the hours devoted to motion practice and mediation, whereas on the whole, the firm’s twenty-six associates billed 70% of the total hours expended on the entire case. The Court stated that the partner-heavy motion practice and mediation work was a “stark contrast to the division of labor in the case as a whole.” The Court found that upon “closer scrutiny” of the time sheets, a reduction of the lodestar multiplier from 1.5 to 1.2 was warranted.
Next, the Court frowned upon the law firm’s practice of “gearing up for discovery” by hiring a large group of temporary associates and billing them at the firm’s standard associate hourly rate of $362 per hour. While the Court recognized and understood the need to hire temporary associates in a complex litigation such as this, the Court did not understand why the firm billed their work at the standard associate hourly rate, when the work they performed was “typically the domain of contract attorneys or paralegals.” The Court found that $200 per hour is a better approximation of what a reasonable paying client would pay for the type of work performed: largely “first-cut document review.” While the firm did not ever refer to the temporary associates as contract attorneys, and in fact treated them as full-time employees by offering benefits and 401(k) plans, the Court determined that they were “contract attorneys in all but name,” thus a reduction was warranted.
The Court therefore determined that the combination of the temporary associate billing practices and the disparities in the division of labor between partners and associates warranted a fee reduction of approximately $10 million. This case should serve as a reminder that law firms should always be sure to appropriately staff its cases – both in numbers and in substance. If a firm hires temporary associates, it should use an hourly rate that reflects the type of work they do, rather than the job titles they have. Further, it is possible that Courts may find such contract staff as outside workers, thus limiting the firm to the actual cost of such staff.
Pennsylvania Pub. Sch. Employees’ Ret. Sys. v. Bank of Am. Corp., 318 F.R.D. 19 (S.D.N.Y. 2016).
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